In a letter sent Tuesday to Novell's board of directors, the hedge fund Elliott Associates said its offer of $5.75 per share represented a premium of 49% over Novell's enterprise value, a measure that includes a firm's market capitalization, preferred stock and debt.

But Novell's stock jumped to $5.97 per share after the offer by Elliott Associates, which already owns 8.5% of Novell, Dow Jones Newswires reported.

Novell's operating income in the quarter ended Jan. 31, 2010, was a modest $21 million, but the company has $1.82 billion in total assets. After subtracting liabilities of $866 million, stockholder equity in Novell exceeds $953 million.

It's not likely Elliott Associates wants a long-term involvement in the IT industry, so the company must believe it will eventually see a return of more than $2 billion, possibly by selling off Novell's most valuable assets piece by piece, analysts say.

"I don't have any inside information, but given the fact that the offer is being made by a hedge fund, my assumption is they've taken a look at Novell's assets and books and they believe there are enough assets within the company to produce more than a $2 billion return if they decided to sell those off," says Pund-IT analyst Charles King.

Novell dominated the network operating system market in the 1990s with NetWare, but usage dwindled and that product has since been replaced by Novell's Open Enterprise Server. Coincidentally, Novell is scheduled to end general support for NetWare this Sunday, but will continue to offer an extended support plan until March 2012.

Novell's SUSE Linux is the second most widely used Linux distribution in the world, but its market share is still less than half that of Red Hat's, says IDC analyst Al Gillen.

Novell is not in dire financial straits, given that it has "close to a billion dollars in the bank," Gillen says. But it's not growing either. Elliott Associates "presumably would make substantial changes to the business operation, to change the profitability of the company and bring it to a point where they could liquidate it," he says.

A bidding war is always a possibility in the IT industry, but in this case Gillen says there is at least one reason to think that won't happen. If IBM or Microsoft were the one offering $2 billion to buy Novell, competitors might feel threatened and consider making a bid themselves. But with Elliott potentially purchasing Novell, competitors might simply be pleased to see the company broken up into several parts and sold separately, Gillen says.

"Novell's got a number of interesting technologies that are potentially attractive to other companies, especially if they can be acquired on an individual basis," Gillen says.

Gillen says he doesn't have the financial expertise to determine whether $2 billion is a fair price for Novell. But Dow Jones Newswires quotes Benchmark Capital analyst Brent Williams as predicting that the deal won't be completed, partly because selling off Novell's individual parts "won't create much value for Elliott."

Gartner's Perkins is more bullish on Novell, saying there is significant growth opportunity in Novell's identity and access management products, as well as the company's Intelligent Workload Management tools, which manage and optimize computing resources across physical, virtual and cloud platforms.

King suggests that Novell's assets could be worth more than the company itself, and doesn't rule out a bidding war. A Microsoft/Novell deal would raise antitrust concerns, and IBM has said it doesn't want to be a Linux distribution vendor, but there are still other IT companies that would be capable of spending more than $2 billion, he says.

Novell "is a very well-established brand in IT," King says. "The company's attempt to transform itself into a multi-platform, open source, operating system provider has not taken off as well as they hoped it would, but there's still a lot of value left in Novell and the products they've got."